United States

Harmony and dissonance in international law

Remarks by Angel Gurría, OECD Secretary-General, delivered at the annual meeting of the American Society of International Law

Washington D.C. 25 March 2011

Ladies and Gentlemen:
I very much appreciate this invitation to participate in the American Society of International Law’s 105th Annual Meeting. I feel privileged to be in the company of so many distinguished members from the legal community, academia and government.

The theme of this event - harmony and dissonance - is very fitting indeed. The financial and economic crisis has been a stern reminder that the world is a patchwork of different realities. A key challenge for the post-crisis world is to create a global governance architecture which will be able to accommodate these multiple perspectives.

At the OECD, we have 50 years of experience in turning dissonance into harmony. In fact this is one of the core values of our Organisation: the belief that through multilateral cooperation we can overcome our differences and tune our economies to create shared development and human progress. The crisis has confirmed the relevance of our mission.

Let me share some of our experiences with you.

1. The OECD as a pathfinder and policy advisor

The OECD was founded in 1961, taking over from the Organisation for European Economic Co-operation, whose aim was to administer the Marshall Plan.

From its original conception directing the economic and social reconstruction of a Europe destroyed by war, to its current role as a hub of international globalisation and for creating a stronger, cleaner and fairer global economy, the OECD has promoting “better policies for better lives.”

Public policies need to be embedded in appropriate legal frameworks in order to fulfil their role. To pursue our mission, we had to develop many of these frameworks and multilateral tools in an increasing number of policy sectors.

Today, the OECD is the only truly multidisciplinary international organisation. It covers almost everything governments deal with, from the economy and education, to anti-corruption, science and technology, to social issues and the environment. It is a forum where policy-makers, economists, scientists and experts meet to share experiences, identify best practices, find solutions to common challenges and build reliable international standards.

At the OECD, we set out international rules. OECD members can chose whether or not they want to turn them into binding agreements. But as there is no single authority to set the rules in international law, many technically non-binding OECD standards or norms are adhered to as if they were binding. This is what many refer to as “the power of soft law”.

How do we do it? Here are a few concrete examples.

2. The role of the OECD as a standard setter

Let me start with the OECD Model Tax Convention. This has been a crucial tool to help create a level playing field in the world economy. It provided a framework for bilateral tax agreements to avoid double taxation. Its quality led it to acquire universal reach. Today, more than 1,500 treaties worldwide are based on the Convention – although only one quarter (350) of them are between OECD member countries.

The Model Tax Convention is a benchmark not just because it is still in use today, but because it epitomizes what makes the OECD unique: its use is voluntary. It is a model template for a tax agreement, but individual countries decide whether they want to use it or not.

A second OECD benchmark which has been crucial to turn dissonance into harmony is the Anti-Bribery Convention, signed in 1997. The treaty, which makes it a crime to bribe foreign officials, was not easy to conclude. In fact, when negotiations started, bribes were still regarded as a tax-deductible expense in some countries.

Today, the Convention includes the OECD’s 34 members as well as 4 non-members as signatories, and the principle has been incorporated into the United Nations Convention Against Corruption (UNCAC). In its anti-corruption work, the G20 has made a strong call to nations which are not parties of the Anti-Bribery Convention, to join. The Convention has, indeed, become a key instrument to promote open markets and fair competition. As we speak, Russia, China and India have proposed or recently approved legislation consistent with the principles of the Anti-Bribery Convention.

The OECD’s Guidelines for Multinational Enterprises are a third interesting example. They provide a set of voluntary principles and standards for good corporate behaviour, covering areas such as employment, competition, taxation, industrial relations and combating bribery. They are now in the process of being revised, updated and upgraded to reflect the changes in the world economy.

And even if in theory, the MNE Guildelines are non-binding, they found their way into the UN Security Council Resolution 1457 (adopted in 2003) on the Illegal Exploitation of Natural Resources in the Democratic Republic of Congo.

So, standards do not have to be binding in order to be effective or useful. Many of our standards are ‘soft law’, but they effectively become binding through peer reviews or through their incorporation into other norms, thus giving them a global reach.

Other examples of standards which started off as non-binding include export credits. They began in the 1970s as a “gentlemen’s agreement” to provide a level playing field and avoid trade distortions, and have now become part of the WTO framework. The exchange of information on tax matters is also an area where our standards have become a norm endorsed by the G20, which is being efficiently implemented by the Global Forum on Transparency and Exchange of Information for Tax Purposes.

Finally, let me raise the importance of another key multilateral instrument, which is becoming essential as we cooperate to better organise the International Monetary System and ensure the free flow of capital: the OECD Code of Liberalisation of Capital Movements. This code is binding for OECD members. But now a number of post-crisis tensions caused by diverging monetary and exchange rate policies among G20 countries are calling for such an instrument to be applied on a global scale and we are supporting the G20 to make best use of it.

These are just a few examples of a much broader universe, but I think they illustrate how we use multilateral cooperation to build a more harmonious and convergent global economy. Of course, we also work hard to ensure their relevance over time, by constantly adapting them to fast-changing economic and global dynamics. The Model Tax Convention for instance, is updated regularly – the most recent update was in 2010. Discussions are also under way, as I mentioned before, to revise the Guidelines for MNEs.

Let me conclude by taking a quick look at the challenges ahead.

3. Challenges ahead: promoting inclusiveness, forging consensus

I would like to focus on two challenges that are becoming crucial to build a more harmonious, effective and reliable international legal framework in the years to come.

The first challenge is: how do we adapt our standards to a changing global economy?

The world is experiencing a tremendous power shift from developed to developing economies. According to our recent study “Perspectives on Global Development: Shifting Wealth”, non-OECD countries’ share of global GDP will rise from 40% in 2000 to 57% in 2030. This shift can also be observed in the spheres of international reserves, trade, investment, science and technology.

Emerging economies must become a part of global governance and the process of global standard setting. They cannot be excluded from the equation.

The OECD may be the gold standard of international co-operation, but when an instrument is only applicable to OECD members, how can we be certain it will have a global impact? And when new countries sign up, how can we ensure that the monitoring system in place will be able to cope?

Finding a common baseline for action is challenging, but essential. The OECD has been adapting to this new reality by adapting its instruments and becoming more inclusive.

Last year, we welcomed four new members into the organisation – Chile, Estonia, Israel and Slovenia – and we are continuing accession negotiations with Russia. We are also enhancing our engagement with key emerging economies – Brazil, China, India, Indonesia and South Africa – and maintaining close relations with more than 100 developing countries.

The second challenge is: how do we help new frameworks like the G20 generate consensus to create new standards?

Overcoming dissonance and promoting harmony in the midst of a multispeed recovery is highly complex: it calls for common understandings and concepts, reliable comparative statistics, joint analysis and policy experience sharing. In a nutshell, it requires strong and effective multilateral co-operation. This is where the OECD, with its 50 years of experience, can make a significant contribution.

And we are already doing so. We are supporting the G20 in areas ranging from taxation, trade and financial sector reform, to corruption, employment, development and green growth. We are producing more comparative statistics and studies for all the G20 countries and we have developed new working methods to support the G20 presidencies and summits. And we are increasingly taking on board the knowledge of people like you, in these very useful exchanges.

Ladies and Gentlemen:
We have a unique opportunity to build more reliable global governance architecture; one which can accommodate the concerns of developed, emerging and developing countries. How do we do it? How can we turn local dissonance into international harmony?

International agreements and coordinated policy actions, as well as coherence among international organizations, will be the crucial pillars for the improved global governance architecture the future demands. You, the “law architects” from ASIL, are welcome to join us in this endeavour. We need you!
Thank you very much.